Clarification in respect of levy of GST on Director’s Remuneration

Clarification regarding the levy of Goods and Services Tax (GST) on the Director’s Remuneration was issued by the Central Board of Indirect Taxes and Customs (CBITC). The context of the clarification is in regard to the doubts wondering whether the remuneration of directors paid to them by their companies will be considered as the “Services by an employee to the employer in the course of or in relation to his employment” (Hence it will not be treated as a supply of goods or services), under the entry in Schedule III of the CGST Act or whether the same will be considered to be liable for tax by the company on the basis of reverse charge under the terms of notification No. 13/2017 - central Tax (Rate) dated 28.06.2017 (entry no. 06).

There have been two categories under which this issue has been examined and clarified, and the same are as follows:

Levy of GST on the remuneration of independent directors and directors who are not employees of the company :

The services provided, by the independent directors or the directors who are not the employees of the company, to the company in lieu of Remuneration as consideration for the aforementioned services, are not included in the Schedule III of the CGST Act 2017. Hence such remunerations are liable to be taxable at the end of the Company on the basis of reverse Charge. 

Levy of GST on the remuneration of directors who are also employees of the said company, paid by companies to :

The part of the Director’s remuneration is not taxable if it is declared as “salaries” in the company’s Books and is also subjected to TDS as per section 192 of the Income Tax Act, being considered for services by an employee to the employer in regards of his employment, under the entry of Schedule III of the CGST Act, 2017.

However, the Part of Director’s remuneration will be taxable if it is not declared as “salaries” in the books of the company and is also subjected to TDS under section 194J, Fees for Professional or Technical Services, of the Income Tax Act. It must be treated as the consideration for providing services that do not fall under the scope of Schedule III of the CGST Act, 2017.

The Company, as the Recipient of said services, is liable to discharge the taxes applicable on the basis of reverse charge.